VALLIAMMAI ENGINEERING COLLEGE. SRM Nagar, Kattankulathur DEPARTMENT OF MANAGEMENT STUDIES QUESTION BANK

Transcription

1 VALLIAMMAI ENGINEERING COLLEGE SRM Nagar, Kattankulathur DEPARTMENT OF MANAGEMENT STUDIES QUESTION BANK III SEMESTER BA5009 CORPORATE FINANCE Regulation 2017 Academic Year Prepared by Dr. Radha Ganeshkumar Assistant Professor (Sel. G ) / MBA

2 VALLIAMMAI ENGINEERING COLLEGE SRM Nagar, Kattankulathur DEPARTMENT OF MANAGEMENT STUDIES BA 5009 CORPORATE FINANCE QUESTION BANK Year and Semester Subject Code and Name Faculty Name SECOND YEAR III SEMESTER (ODD) BA5009 CORPORATE FINANCE Dr.Radha Ganesh Kumar, Assistant Professor UNIT I INDUSTRIAL FINANCE Indian Capital Market Basic problem of Industrial Finance in India. Equity Debenture financing Guidelines from SEBI, advantages and disadvantages and cost of various sources of Finance - Finance from international sources, financing of exports role of EXIM bank and commercial banks Finance for rehabilitation of sick units. Q.No Unit - I - Part - A - Question Level Competence 1 Define Cost of Capital. 2 Write about Capital Market BTL 2 3 Identify the use of debt capital. BTL 3 4 Classify the various types of debentures. BTL 4 5 Discuss the methods of export financing. BTL 5 Evaluate 6 Interpret the functions of EXIM bank. BTL 6 Create 7 Define Corporate Finance and Industrial Finance. 8 Differentiate Capital market and money market. BTL 2 9 How would you have calculate cost of debt when issued at par and redeemed at premium? BTL 3 10 What is book building approach to public issues? BTL 4 11 How would you bring out the causes of sickness? BTL 5 Evaluate 12 Interpret the symptoms of sickness. BTL 6 Create 13 What is meant by debenture? 14 Can you explain about EXIM bank? BTL 2 15 How would you focus on the functions ofcommercial banks? BTL 3 16 Classify the problems of Industrial Finance. BTL 4 17 Define Capital market. 18 Classify the different operating groups of EXIM bank. BTL 2

3 19 20 What are the distinctive features of financing for rehabilitation of Sick units? What is a sick unit? Q.No Unit - I - Part - B - Question Level Competence (i)define the structure of Indian Capital market. (4 Marks) 1 (ii)what is the role of Capital market in the economic development of a Country? (9 Marks) 2 Explain the role of SEBI in regulatingindian Capital Market. BTL 2 3 Identify the different forms of share a companycan issue? BTL 3 4 Elaborate & Illustrate about the cost of various forms of capital. BTL 4 (i)can you explain the role of commercial bank for export financing? Evaluate 5 (6 Marks) BTL 5 (ii)can you bring out your understanding on EXIM bank financing for exports in India?(7 Marks) 6 (i) Equity method of financing is more suited in the present scenario - Explain.(7 Marks) (ii) What are the features of Equity shares? Discuss its advantages & disadvantages.(6 Marks) BTL 6 Create 7 (i)define the emergence of Industrial finance.(4 Marks) (ii)explain the problems of Industrial finance in India.(9 Marks) 8 Explain the various sources of long term finance. BTL 2 9 What are the guidelines of SEBI with respect to debenture issue? BTL 3 10 Examine the various sources of International finance. BTL 4 11 List the causes of Industrial sickness in India. 12 Explain the role of BIFR in the rehabilitation of sick units. BTL 2 (i)examine the procedure for rehabilitation of Sick Unit. (7 Marks) 13 (ii)elaborate the financing for rehabilitation of Sick Unit. (6 Marks) BTL 4 14 (i)what are the present features and functions of Indian Capital Market? (9 Marks) (ii)what is the relationship between Primary market and Secondary Market? (4 Marks)

4 Q.No Unit-I Part- 1. SEBI's role as a regulator of Indian capital markets was once again, when the BSE index crashed by 176 points. This was the result of the large position taken by a stockbroker - Ketan Parikh (KP) in ten stocks, popularly known as K10. The companies in which KP held high equity stakes included Amitabh Bachchan Corporation Limited, Mukta Arts, Tips, PritishNandy Communications, HFCL, Global Telesystems, Zee Telefilms, Crest Communications and PentaMedia Graphics. Analysts felt that the major reason for SEBI's failure to protect investors against scams was lack of skilled human capital. For instance, they quoted the example of the KP scam in which KP had taken huge positions in ten stocks. In spite of SEBI possessing this information, it could not gauge KP's vested interests in acquiring these huge positions and his illegitimate plans. In a poll conducted during the period, over 90% of the respondents believed that the regulatory environment was not sufficient to protect the rights of retail investors in India. Restoring the confidence of retail investors in the market will be an important task of SEBI. 2. How is debenture financing differentfrom Bank loans, Equity shares and bonds? 3. The Sick Industrial Companies Act (SICA) had been in deal with the public interest to deal with the problems of industrial sickness with regard to the crucial sectors where public money is locked up. It contains special provisions for timely detection of sick and potentially sick industrial companies, speedy determination and enforcement of preventive, remedial and other measures with respect to such companies. The Government of India provided various concessions and incentives to the Sick sector for their sustained growth. Assisting new Sick units on soft terms by lending institutions, reservation of certain Industries for the SSI sector, incentives related to land/shed financing, machinery and rawmaterials, provision of facilities within the Industrial Estates, and Excise duty exemption and price preferences. (i)elucidate on the sickness prevailing in our country.(10 Marks) (ii)critically examine the measures taken by SICA for Sick Units revival. (5 Marks) 4. Identify and examine the role of EXIM bank of India in foreign investment.

5 UNIT II SHORT TERM-WORKING CAPITAL FINANCE Estimating working capital requirements Approach adopted by Commercial banks, Commercial paper- Public deposits and inter corporate investments. Q.No Unit - II - Part - A Question Level Competence 1 Define working capital. 2 Compare Gross and Net working capital. BTL 2 3 Identify the factors bearing importance on working capital needs. BTL 3 4 What are the sources of working capital? BTL 4 5 Discuss the phases of working capital cycle. BTL 5 Evaluate 6 Interpret with simple illustration, the computation of MPBF? BTL 6 Create 7 What is Commercial paper? 8 Differentiate public & intercorporate deposits. BTL 2 9 Brief out on Inter corporate Investments. BTL 3 10 What is Certificate of Deposits? BTL 4 11 What is commercial paper BTL 5 Evaluate 12 Interpret the various methods of calculatingworking capital. BTL 6 Create 13 How would you bring out the various approaches of maintaining working capital? 14 Why trade credit is called spontaneous financing? BTL 2 15 Write a note on public deposits. BTL 3 16 Classify permanent and temporary working capital. BTL 4 17 Define Factoring. 18 Compare public deposit with fixed deposit. BTL 2 19 How is cash credit different from loan financing? 20 What are the features of cash credit? Q.No Unit - II - Part - B Question Level Competence (i)define the various concepts of Working Capital.(4 Marks) 1 (ii)what are the different methods of working capital financing?(9 Marks) 2 3 (i)explain the main forms of working capital advance by banks?(7 Marks) (ii)what kind of security is been required by banks for working capital Finance. (6 Marks) (i)how would you explain the various methods of forecastingworking capital requirements?(9 Marks) (ii)what is the need for assessing working capital requirement?(4 Marks) BTL 2 BTL 3

6 How would you categorize the various factors influencingonthedemand for working capital in a manufacturing concern? BTL 4 Working Capital must be adequate but at the same time not excessive - Comment. BTL 5 (i)discuss how the cash requirements for working capital are estimated. (7 Marks) (ii)discuss the proforma for computation of working capital requirement. (6 Marks) (i)define the features and categories of inter corporate investment. (4 Marks) (ii)explain provisions under companies act 1956 relating to inter corporate investment.(9 Marks) (i)what do you understand by Current asset financing?(6 Marks) (ii)what is hedging approach of Current asset financing?(7 Marks) BTL 6 BTL 2 Evaluate Create 9 Can you explain about the advantages and limitations of Commercial paper? BTL 3 10 Discuss the features of Commercial paper. BTL 4 11 How public deposits are used as a source of finance? 12 Write Short notes on: (i)public deposits (6 Marks) (ii)inter corporate investments(7 Marks) BTL 2 13 Explain the various approaches of estimating working capital management BTL 4 14 What are the advantages and disadvantages of public deposits?

7 Q.No Unit II Part-C 1 From the following information prepare a statement showing working capital requirement Sales for the year units Cost Raw materials Rs.10 per unit Labour Rs.6 per unit Overhead Rs.4 per unit Total Rs.20 per unit Additional information: Raw materials are in stock on an average for one month. Materials are in process on an average for 2 months Finished goods are in stock on an average for 3 months Credit allowed to customer four months Credit allowed by suppliers two months It may be assumed that production and overhead accrue throughout the year. 2 What is the importance of working capital for a manufacturing firm? what shall be the repercussions if a firm as a) paucity of working capital b) excess working capital. 3 Examine regulations under sec 186 of Companies Act 2013 for Inter corporate investments in India. From the following information of VSGR Company Ltd., estimate working capital needed to finance a level of activity of 1,10,000 units of production after adding a 10 per cent safety contingency. Raw materials Rs.78 Direct Labour Rs.29 Overheads (excluding depreciation) Rs.58 Total cost Rs.165 Profit Rs.24 Selling price Rs.189 Additional information: Average raw materials in stock : one month Average materials in process (50% completion stage):1/2month Average finished goods in stock: one month Month month Credit allowed by suppliers: one month Credit allowed to customers : Two months Time lag in payment of wages : one and half weeks Overhead expenses : one month One fourth of the sales are on cash basis. Cash balance is expected to be Rs. 2, 15,000. You may assume that production is carried on evenly throughout the year and wages and overhead expenses accrue similarly.

8 UNIT III ADVANCED FINANCIAL MANAGEMENT Appraisal of Risky Investments, certainty equivalent of cash flows and risk adjusted discount rate, risk analysis in the context of DCF methods using Probability information, nature of cash flows, Sensitivity analysis; Simulation and investment decision, Decision tree approach in investment decisions. Q.No Unit - III - Part - A Question Level Competence 1 What is risk analysis? 2 Compare RAD & CE. BTL 2 3 Identify the different mathematical models used in risk analysis of Capital budgeting. BTL 3 4 What is Sensitivity analysis in Investment decision? BTL 4 5 Discuss the certainty equivalent method of Investment decision. BTL 5 Evaluate 6 Can you interpret the assumptions underlyingsensitivity analysis? BTL 6 Create 7 Define risk from capital budgetingpoint. 8 Mention any two methods of investment analysis. BTL 2 9 What is sensitivity analysis? BTL 3 10 What is decision tree approach? BTL 4 11 Discuss the different steps in decision tree approach. BTL 5 Evaluate 12 Interpret the various types of risk. BTL 6 Create 13 Define Probability distribution approach. 14 Compare the different forms of discounted cash flow techniques. BTL 2 15 How would you show your understandingonthefactors favorable for making investment decision in the economy? BTL 3 16 Draw a decision tree & Illustrate. BTL 4 17 Define Simulation analysis. What are the advantages & disadvantages of decision tree 18 approach? BTL Define RAD with example Define CE with example. Q.No Unit - III - Part - B Question Level Competence (i)define the concept of Risk in Investment Decisions.(8 Marks) 1 (ii)explain the nature of business risk, interest rate risk and market risk. (5 Marks) 2 (i)what is probability approach for risky investments? Illustrate. (7 Marks) (ii)how is it utilized in analyzing risk of investment projects? BTL 2

9 3 4 (6 Marks) What are the various methods of appraising investment proposals under risks and uncertainties? BTL 3 (i) Cash flow of a firm is categorized into three as per AS-3. Name the three and give four examples under each category.(7 Marks) (ii)explain the nature and determinants of cash flows.(6 Marks) BTL 4 5 Elaborate the decision tree approach in investment approach with example. BTL 5 Evaluate 6 Interpret Simulation method of investment analysis with an example. BTL 6 Create From the following information state which project is preferred? Two alternative projects are available(project X and project Y) each costing Rs.10,00,000 Year Project X Project Y 1 4,00,000 5,00, ,50,000 4,00, ,50,000 3,00, ,00,000 3,00,000 The company has a target return on capital (riskless discount rate) of 10%. The management considers risk premium rate at 2 percent and 8 percent respectively, project X and project Y. From the following information, ascertain which project should be selected on the basis of standard deviation. Project X Project Y Cash Inflow Probability Cash Inflow Probability 8 Rs. Rs. BTL (i)how would you understand the advantages & disadvantages of various DCF techniques?(5 Marks) (ii)a Company is considering projects X and Y with the following information: Project X Y 9 Expected NPV Standard BTL 3 deviation Which project will you recommend? Will your answer change if you use coefficient of variation as a measure of risk instead of standard deviation? Which is more appropriate? Explain.(8 Marks) (i)discuss RAD & CE approach. (4 Marks) 10 (ii)the Globe Manufacturing Company Ltd. is considering an investment in one of the two mutually exclusive proposals- projects X and Y, which require a cash outlays of Rs and Rs respectively. The CE approach is used in incorporating risk in capital budgeting decisions. The current yield on government bond is 8% and this will be used as the risk less rate. The expected net cash flows and their CE s are as follows: BTL 4

10 Project X Project Y Year End Cash flow(rs) CE Cash flow(rs) CE Which project should be accepted? (9 Marks) 11 Define the various risks associated with the investment of funds (i)what is the sensitivity approach for dealing with project risk? (7 Marks) (ii)what is the most common method used to evaluate projects using sensitivity analysis?(6 Marks) M/S Zenith Enterprises is considering a project with the following cash flows: Year Cost of Running Savings(Rs.) Plant(Rs.) Cost(Rs.) 0 (7000) The Cost of Capital of firm is 8%. Measure the sensitivity of the project to changes in the levels of plant value, costs and savings(considering each factor at a time) such that the net present value of the project becomes zero. What factor is the most sensitive to affect the acceptability of the project? Mr. Selva is considering two mutually exclusive project X and Y. You are required to advise him about the acceptability of the projects from the following information. Project X Cost of the Investment 1,00,000 1,00,000 Forecast cash inflows per annum for 5 years Optimistic Most likely Pessimistic The cut-off rate may be assumed to be 15%. BTL 2 BTL 4

11 Q.No Unit-III Part-C 1 A project is in the consideration of a firm. The initial outlay of the project is Rs. 10,000 and it is expected to generate cash inflows of Rs. 4000, Rs. 3000,Rs 5000and Rs 2000 in the four years to follow.assuming 10% rate of discount. Calculate the NPV and benefit cost ratio of the project. 2 A firm has an investment proposal, requiring an outlay of Rs.40,000. The investment proposal is expected to have 2 years economical life with no salvage value. In year I, there is a 0.4 probability that cash inflow after tax will be Rs and 0.6 probabilities that cash inflow after tax will be Rs.30,000. The probability assigned to cash inflow after tax for the year II are as follows: Cash Inflow Year I Rs Rs Cash Inflow Year II with Rs Rs probabilities Rs Rs Rs Rs The firm uses a 10% discount rate for this type of investment. Construct a decision tree for the proposed investment project. 3 Capital expenditure decisions are by far the most important decisions in the field of man agement. Illustrate. 4 Is there any difference between risk and uncertainty? Elucidate about capital budgeting decisions in an organization.

12 UNIT IV FINANCING DECISION Simulation and financing decision - cash inadequacy and cash insolvency- determining the probability of cash insolvency- Financing decision in the Context of option pricing model and agency costs- Interdependence of investment- financing and Dividend decisions. Q.No Unit - IV - Part - A Question Level Competence 1 What is Dividend? 2 Compare Cash Inadequacy and Cash Insolvency. BTL 2 3 Identify the objectives of ratio analysis. BTL 3 4 Can you list the major solvency ratios? BTL 4 5 What is the need for dividend decisions in the organization? BTL 5 Evaluate 6 Explain the different types of dividend policy. BTL 6 Create 7 Define agency cost. 8 What are the components of financing decision? BTL 2 9 Give an example of agency cost. BTL 3 10 Can you list the various methods of pricinganoption? BTL 4 11 What do you understand by call option? BTL 5 Evaluate 12 Do you agree investment decision is interdependentonfinancing decision? BTL 6 Create 13 What is an option? 14 Can you explain about Binomial model of option pricing? BTL 2 15 What would be the assumptions of Black Scholes option pricing model? BTL 3 16 Why do you think investment decision is interdependent on dividend decision? BTL 4 17 Define Investment decision Can you explain the interdependence of financing decision on dividend decision? BTL 2 What is simulation? What is dividend policy? Q.No Unit - IV - Part - B Question Level Competence How would you show the relationship between thefinancing 1 decision and investment decision in a firm? BTL1 2 3 (i)explain about Simulation decisions.(5 Marks) (ii)what do you understand by Monte Carlo Simulation?(8 Marks) What would result if option prices are affected? Identify the factors. BTL2 BTL3 4 Examine the factors influencing dividend decision of a firm. BTL4

13 (i)can you formulate on preventive measures for Cash Inadequacy?(9 Marks) (ii)what are the symptoms of Cash Inadequacy?(4 Marks) (i)as a financial manager how would you take financial decision in context of option pricing model?(8 Marks) (ii) Can you explain about Binomial Option pricing Model?(5 Marks) BTL5 BTL6 What are the underlying assumptions and pricing according to Black Scholes Option pricing model? Explain the legal and procedural aspects of dividends accordingto Companies Act BTL 2 Evaluate Create 9 List the factors determining probability of cash insolvency BTL 3 10 ABC Ltd has currently 15 lakhs shares of Rs.100 each. At the end of the year, the company wants to declare dividend payment at the rate of Rs.5 per share. The capitalization rate for risk class to which the firm belongs is 10 per cent. It expects to have a net income of Rs.2,50,00,000 and has a proposal for making new investment of Rs.5 Crores, Show that under the MM assumption, the payment of dividend does not affect the value of the firm. BTL 4 11 Discuss financing decision in the context of option pricing model (i)what do you understand by Agency Costs? (7 Marks) (ii)how do we resolve agency problems?(6 Marks) (i)discuss the various types of real options.(5 Marks) (ii)find out the value of call option & put option of a share whose current market price is Rs.47. Exercise price is Rs.45. Time to expiration 183 days. The expected price quantity is 25% and expected rate is 10%.(8 Marks) A company has a total investment of Rs.5,00,000 in assets and 50,000 outstanding ordinary shares at Rs.10 per share(par value). It earns a rate of 15 percent on its investment and has a policy of retaining 50 percent of the earnings. If the appropriate discount rate of the firm is 10 per cent, determine the price of the share using Gordon s model. What shall happen to the price of the share if the company has a payout of 80 per cent or 20 per cent? BTL 2 BTL 4 Q.No Unit-IV Part-C 1. The earnings per share of company is Rs.10. It has an internal rate of return of 15per cent and the capitalization rate of its risk class 12.5 per cent. If Walter s model is used(i) What should be the optimum payout ratio of the fim? (ii) What would be the price of the share at this payout? (iii) How shall the price of the share be affected if a different payout were employed?

14 2. Calculate the value of a call option using the B-S model given the following information: Current market price of the share (S): Rs.75 Volatility (standard deviation): 0.45 Exercise price (E): Rs.80 Risk free rate of return Rf: 0.12 Time to expiration: 6months -0.5yrs If an investor wants to buy a put with same exercise price & expiration date as call option, what will be the value of put? 3. What is the argument about the tax neutrality of dividend? Illustrate your answer. 4. Examine about Option trading in India.

15 Q.No Unit - V - Part - A Question Level Competence 1 What is Corporate governance. 2 Will you state the need for business ethics? BTL 2 3 What do mean by Corporate disasters? BTL 3 4 How would you categorize the three views of stakeholders? BTL 4 5 Can you elaborate on the principles of Corporate governance? BTL 5 Evaluate 6 Why should the corporate assume social responsibility? BTL 6 Create 7 Define Corporate social responsibility. 8 Compare Disclosure and Transparency. BTL 2 9 Identify the areas of Corporate social responsibility. BTL 3 10 How would you categorize the factors that affect business ethics? BTL 4 11 Can you explain the need for business ethics? BTL 5 Evaluate 12 Can you cite the importance of CSR towards society? BTL 6 Create 13 What is business ethics? 14 Will you state about managers and professionalism? BTL 2 15 Illustrate an example for CSR in any organization. BTL 3 16 How would you explain the principles of business ethics? BTL 4 17 Define Professionalism. 18 Compare the practices of managers and ethics. BTL 2 19 What is CEO/CFO certification? 20 What are the reasons for corporate disasters? Q.No Unit - V - Part - B Question Level Competence (i)what are the principles of corporate governance?(5 Marks) 1 (ii)give list of contents of clause 49 of the listing agreement?(8 Marks) 2 Explain the role of SEBI in Corporate Governance. BTL 2 3 How the company can execute corporate social responsibility in the changing business environment? BTL Examine the tools employed to promote socially responsible practices in business. BTL 4 (i)can you explain the need and requirements of Corporate governance? (6Marks) (ii)what is the importance of Corporate Governance?(7 Marks) BTL 5 Evaluate

16 6 Can you cite the various areas/activities of Corporate social responsibility? BTL 6 Create 7 What are the key SEBI guidelines on Employee stock option scheme? 8 Explain the salient features of Corporate governance in the Indian Public sector. BTL 2 9 (i)identify and explain the need and principles of Business ethics. (8 Marks) (ii)what are the factors affecting business ethics.(5 Marks) BTL 3 10 Examine the causes and symptoms of Business Disaster BTL 4 (i)describe stakeholder theory.(6 Marks) 11 (ii)describe Agency theory of Corporate Governance.(7 Marks) (i)is ethics necessary in business? Comment.(8 Marks) (ii)what are the types of ethics followed in organizations?(5 Marks) Write short notes on the following: i) Corporate disasters (3 Marks) ii) Corporate ethics (3 Marks) iii) Managers and professionalism (3 Marks) iv) Role played by SEBI in avoiding, corporate disasters, ethics, and also describe CSR initiatives of corporate world. (4 Marks) Describe the importance of CSR of present day business. BTL 2 BTL 4 Q.No Unit-V Part- 1 Indian financial markets are characterized byalack of adequate disclosure and weak corporate governance -Comment 2 Critically examine on any recent financial scams inindia. 3 Are Indian companies ready to handle disasters? Elucidate on disaster risk management and the role of corporate sector. 4 Describe the principles and advantages of Corporate Governance